The second bolded section has me wondering what is meant by "but for the fact that there is no corpus"? =====================================That goes back to very old theories of what a trust actually is.

If I remember my Business Law classes right, the definition of a trust is something like "an arrangement where one party (the "trustee") holds title or possession to property for the benefit of another party" (the "beneficiary".) The other party to the arrangement, of course is the "grantor" (or "settlor")

But the essence of the trust is that the trust has property, or assets. The property placed in the trust is called the "corpus" of the trust. Without it, there is no trust - under this old theory. "Corpus" is sort of an older word, being Latin. The modern terminology is usually trust "principal" instead.

Now many trusts are established under a signed agreement, and then lie dormant until future events occur - usually, somebody dies. This then leads to the question: does the trust exist, without being funded -i.e., without assets?

This is not usually a problem unless state law requires that a trust actually has to be in existence before a probate case begins, or the decedent's estate may be in probate when that was not the intent. And to avoid probate, or to get probate concluded, you don't want a trust created under the actual will. Because then the case can stay open in court for as long as the trust continues, and that can run for generations.

So trust documents often state by stipulation that the trustee has received $10 cash, or something, as the initial transfer of assets.

A trick I used to see, but not so much anymore, is that a lawyer would set up a trust and as soon as he had an ID number, go out and buy a $25 US Savings Bond in the name of the trust. What this did was:..Put property into the trust...The US Treasury was the other party to the transaction, so the IRS couldn't very well question it...The savings bond would not produce current income, so no income tax filing would be due for years.

In many states with more modern laws, a trust doesn't have to be funded in advance to be valid. As quoted, the IRS rules specifically don't care whether the trust has corpus, regardless of state law.

Announcements

Disclaimer:
In accordance with IRS Circular 230, you cannot use the contents of any post on The Motley Fool's message boards to avoid tax-related penalties under the Internal Revenue Code or applicable state or local tax law provisions.

When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.

Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.